The Chinese Version of the Fourth Industrial Revolution
Manufacturing has been the mainstay of the Chinese economy and a driver of its expansion. This was the sector that helped China rise to the level of being the world’s second biggest economy today. This impressive evolution was based on a large workforce, low wages and government support, as well as radical initiatives in manufacturing. But, in today’s world of competition, when other world industrial leaders continue to develop technologically, it is not possible for China to remain centred around a strategy of labour-intensive, low-cost production strategy. Recognizing the opportunities and challenges that technology brings to the continued development of the country, China’s current premier, Li Keqiang, launched the “Made in China 2025 ” (MIC 2025 ) policy with an aim to drive automation and intelligent manufacturing as a stepping stone to remain relevant and competitive in the future world economy.
Launched by Premier Li Keqiang in 2015, “Made in China 2025″ strategy aims to guide the China’s industrial modernization, including the substitution of foreign technology with innovation developed on the mainland. In his 2015 Annual Government Work Report, Prime Minister Li announced, “We will implement the ‘Made in China 2025’ strategy, seek innovation-driven development, apply smart technologies, strengthen foundations, pursue green development and redouble our efforts to upgrade China from a manufacturer of quantity to one of quality.”
Here we take a look at various aspects of this strategy that is being increasingly called the Chinese version of the Fourth Industrial Revolution.
Originally announced in 2015, China’s industrial master plan “Made in China 2025 ” aims to turn the country into a “manufacturing superpower” over the coming decades. This industrial policy will challenge the economic primacy of the current leading economies and international corporations as it targets virtually all high-tech industries that strongly contribute to economic growth in advanced economies: automotive, aviation, machinery, robotics, high-tech maritime and railway equipment, energy-saving vehicles, medical devices and information technology, to name only a few. Countries in which these high-tech industries contribute a large share of economic growth are most vulnerable to China’s plans.
Aims and Objectives
MIC 2025 sets to modernize China’s industrial capability. This 10-year, comprehensive strategy focuses heavily on intelligent manufacturing in 10 strategic sectors and has the aim of securing China’s position as a global powerhouse in high-tech industries such as robotics, aviation, and new energy vehicles such as electric and biogas. This research and development driven plan is seen as a critical element in China’s sustained growth and competitiveness for the coming decades as it transitions into a developed economy.
It also seeks to ensure Chinese manufacturers remain competitive with emerging low-cost producers such as Vietnam.
Read More: Mapping the Chinese century
The plan involves replacing China’s reliance on foreign technology imports with its own innovations and creating Chinese companies that can compete both domestically and globally. Therefore, there is a strong emphasis on its domestic manufacturing process where it wishes to increase production, not only on the essential components, but on the final product as well. With a focus on quality, the investment is towards technological innovation and smart manufacturing in areas such as machine learning, where the technology that is difficult to replicate via reverse engineering. Smart manufacturing involves combining the internet with wireless sensors and robotics to improve its manufacturing efficiency, quality and productivity. If successful, China would move up the value-added chain, repositioning itself from a low-cost manufacturer to a direct competitor to nations like South Korea, Japan and Germany.
The unveiling of MIC 2025 shows a clear blueprint of the administration’s approach to transform China into an advanced manufacturing leader. Together with the 13th Five-year Plan, MIC 2025 formalizes a broader strategy to use state resources to alter and create comparative advantages on a global scale. Various innovations such as 3D printing, cloud computing and big data are key developments needed in order to transform China into a world-class industrial leader with innovation capacity and economic efficiency. In the race to fill these gaps, considerable opportunities for projects and partnerships will be created to drive the necessary upgrade and transformation.
10 Sectors Covered
1. Next-generation information technology, including cybersecurity.
2. High-end numerical control tools and robotics, which provide China with greater manufacturing efficiency as labour costs rise.
3. Aerospace equipment, which shows China’s determination to be a world leader in outer space exploration.
4. Ocean engineering equipment and hi-tech ships, signifying maritime security implications of China’s territorial claims in the South China Sea and the East China Sea.
5. Advanced railway equipment, which shows how advanced China’s high-speed railway systems have become.
6. Energy-saving and new energy vehicles, which highlights China’s goal to replace traditional petrol vehicles with those that use alternative fuel.
7. Power equipment, which are part of China’s implementation of clean power.
8. Agricultural machinery, which represents China’s advances in producing large tractors and high-performance combines.
9. New materials, which include materials like graphene and nano materials.
10. Biomedicine and high-performance medical devices, which includes China’s development of advanced chemicals and medical equipment.
Required Technological Catch-up
Within the sectors highlighted by MIC 2025, many domestic Chinese firms still have to overcome significant technological gaps when compared to foreign companies with extended timelines and continued financial support to be essential to take them into the next stage. To jumpstart the technological catch-up with the advanced countries, China has encouraged mergers and acquisitions (M&A) in targeted sectors. State funds are being injected into private equity to support foreign acquisitions. In 2016, M&A in the industrials sector represented 51% of all outbound M&A, up from an average of 26% from 2005-2010. Moreover, on Jan 17, 2017, the State Council issued a plan named “Circular Concerning Measures on Further Opening up and Actively Utilizing Foreign Investment,” which lays out new measures to further open up the economy, improve business environment and boost foreign investment. These programmes mark only the beginning, and foreign companies that engage in participation during the early stages of MIC 2025 will play significant roles to set international standards and enjoy improved market access.
MIC 2025 and Strategic Emerging Industries 2006
MIC 2025 is a departure from the 2006 initiative “Strategic Emerging Industries” (SEI), which is smaller in scope, centred on upgrading advanced technologies to secure the position of strategic emerging industries such as renewable and alternative fuels and with those industries initially expected to make up 15 percent by 2020. The SEI was narrower in scope, state-driven initiative, featuring regulatory scrutiny over foreign investments in the strategic industries, mergers, joint ventures, access to foreign IP and agreements between the government and foreign entities for “strategic assets to remain in China or under the control of a Chinese company.”
MIC 2025 is broader in scope, targeting the entire manufacturing process rather than only technical innovations, promoting traditional industries and services and introducing “specific measures for innovation, quality, intelligent manufacturing and green production”. Despite public involvement, the project ultimately requires market forces to achieve the desired upgrades and adopt international technical standards and benchmarks.
MIC 2025 and the 13th Five-Year Plan
Although there is an overall departure from the SEI initiative, MIC 2025 does fall in line with China’s 13th Five-year Plan (FYP) by seeking “to advance indigenous innovation and build global champions through linkages with other plans.” There is an overlap between MIC 2025 and FYP in industry focus and overarching policy direction, with FYP highlighting the “critical importance to the government’s leadership in advancing indigenous innovation, achieving technological self-sufficiency, reaching a secure and controllable standard, and expanding the state’s role in the market.” Further, China’s “Strategy Outline” also corresponds to MIC 2025, with the goal of achieving self-sufficiency in critical high-end materials, high-end medical devices, and patented pharmaceuticals.
MIC 2025 Goals
China seeks to end its reliance on international technology and upgrade its industrial capability and smart manufacturing by ensuring that innovation, product quality, efficiency and integration drive manufacturing across 10 key industries. Those industries include advanced information technology; automated machine tools and robotics; aerospace and aeronautical equipment; ocean engineering equipment and high-tech shipping; modern rail transport equipment; energy saving and new energy vehicles; power equipment; new materials; medicine and medical devices; and agricultural equipment.
Further aims involve developing brand awareness of companies and meeting green development targets. Green development will prove important to the government’s strategies to combat climate change and address the health and environmental impact of China’s industrialization.
The focus on branding and product quality is with a view to international expansion and competitiveness. For example, in the agriculture sector, the goal is to establish up to three recognizable brands and up to five internationally competitive companies.
Reducing reliance on foreign technologies involves creating and developing companies that can innovate through research and development, dominate domestically, and produce competitive exports. The “goal of raising domestic content of core components and materials to 40 percent by 2020 and 70 percent by 2025” will contribute to self-sufficiency and the end goal of localizing the manufacturing process; however, such targets violate WTO rules.
While China is aiming to move up the value-added chain, it also sees MIC 2025 as a chance to fully integrate into the global manufacturing chain and more effectively cooperate with industrialized economies. Even if key targets are not achieved, the initiative will improve China’s “overall economic governance’” and strengthen its financial, education, healthcare and manufacturing sectors.
How will MIC 2025 be achieved?
Indications of this intention are omnipresent in Made in China 2025. The strategy stresses terms like “indigenous innovations” and “self-sufficiency”. It intends to increase the domestic market share of Chinese suppliers for “basic core components and important basic materials” to 70 percent by the year 2025. Semi-official documents related to the strategy set very concrete benchmarks for certain segments: 40 percent of mobile phone chips on the Chinese market are supposed to be produced in China by 2025, as well as 70 percent of industrial robots and 80 percent of renewable energy equipment.
In order to achieve these goals, government entities at all levels funnel large amounts of money into China’s industrial future. The recently established Advanced Manufacturing Fund alone amounts to 20 billion Chinese Yuan (CNY). The National Integrated Circuit Fund even received 139 billion CNY. These national level funds are complemented by a plethora of provincial level financing vehicles. The financial resources are enormous compared to, for instance, the 200 million EUR of federal funding that the German government has provided for research on Industry 4.0 technologies so far.
Will It Succeed?
MIC 2025 would have a significant impact on China’s domestic as well as international markets. However, the strategy is at the same time limited by a number of significant weaknesses, diminishing its scope and impact. The strategy is likely to succeed in elevating a small vanguard of Chinese manufacturers to a higher level of efficiency and productivity. These frontrunners are likely to dominate their sectors on the Chinese market and become fierce competitors on international markets.
At the same time, MIC 2025 will probably fail in its endeavour to catalyse a comprehensive, broad-scale technological upgrading across the Chinese economy. The strategy’s effectiveness is limited by the mismatch between political priorities and industry needs, the fixation on quantitative targets, inefficient allocation of funding and campaign-style overspending by local governments. The lack of bottom-up initiative and investment is a pronounced weakness of MIC 2025.
In addition, structural factors will further diminish the effectiveness of the policy: China’s economy is currently experiencing downward pressure. Upgrading the production processes might result in job losses among the less skilled workforce. On the other hand, China’s education system is not prepared for training skilled personnel capable of operating sophisticated smart manufacturing tools. As a result, the overarching goal of Made in China 2025, the deep transformation of China’s entire manufacturing base, will most probably not be reached within the ambitious time frame set by the Chinese leadership.
Despite its weak spots, MIC 2025 is a reflection of China’s sophisticated and strategic industrial policy. The strategy will rapidly increase the global competitiveness of key Chinese companies, selectively targeting the most important industries of the future. It is a forceful and smart challenge to the leading economies of today.
This post has been seen 678 times.